Shipping Costs Explained: What Determines Your Total Shipping Costs
Published: September 2026
Growing your business means juggling many priorities, and managing shipping costs is one of the most critical ones. Shipping expenses can quietly erode margin if not planned for, and many businesses underestimate just how much they are really paying.
Understanding what goes into your shipping costs and how costs are calculated is essential to planning ahead, protecting your margin, and pricing with confidence as your business grows.
What Determines Your Total Shipping Costs
The total cost of shipping typically comprises carrier-specific baseline transportation or freight costs, as well as surcharges based on your specific requirements and market dynamics, such as fuel cost increases. Other fees, such as customs duties and taxes, are not specifically categorized as shipping costs, but they should be considered when calculating the total costs of getting products to your international customers.
Here's what you'll find on this page:
What is landed cost and why does it matter for shipping?
Landed cost is the total sum of all expenses associated with shipping a product to its final destination. It typically includes the original product cost, shipping costs and surcharges, customs duties and taxes, insurance, and overhead fees.
It’s essential to differentiate between shipping costs and your complete landed cost. The phrase "shipping costs" is often interpreted to mean freight or baseline transportation costs. In contrast, landed cost is much broader and is arguably the more important cost to calculate when setting product pricing.
The standard landed cost formula is Product + Shipping + Customs + Risk + Overhead = Landed Cost. By estimating the cost of each component and using this formula to calculate the total, you can better assess your total costs and build a margin buffer into your pricing.
What are shipping surcharges and how can businesses manage them?
Shipping surcharges, also known as accessorial fees, are additional charges carriers apply on top of baseline transportation rates to cover extra handling, specialized services, and dynamic market variables. These fees are calculated as flat charges per package, variable percentages, or per-kilogram rates depending on the specific carrier guidelines.
Carriers charge these surcharges to recover the costs associated with additional or non-standard activities as well as costs related to fluctuations in demand and fuel prices. For example, location-based fees are charged to offset the extra transit time and fuel required to deliver to private residences or areas outside standard operating zones. Similarly, additional handling fees cover the manual intervention needed to process heavy, oversized, or irregularly packaged shipments that cannot pass through standard, automated sorting machines.
Some of these expenses can compound, as some percentage-based fees such as weekly fuel surcharges are typically assessed on both the baseline transport rate and select handling fees. This is why it is especially vital to be proactive and identify potential surcharges before you ship. There are also practical steps you can take to avoid or minimize some surcharges. These include right-sizing packaging, opting into online billing, and using a software tool to verify shipping addresses for online orders.
What is dimensional weight and how does it affect costs?
Dimensional (DIM) weight is a billing method carriers use to price shipping based on a package's volume rather than its actual scale weight. DIM weight is calculated by multiplying a package's length, width, and height, then dividing by the carrier's standard DIM divisor. Shipments are charged based on whichever is higher: the physical scale weight or the calculated DIM weight.
Because carriers have finite cargo space, they must manage volume just as closely as weight constraints. Charging by dimensional size ensures that bulky, lightweight items are priced fairly relative to the physical room they occupy. Without DIM weight pricing, shipping an oversized box of pillows would be disproportionately less expensive than shipping a smaller box of heavy hardware, even though the pillows would take up more space. The economics of this would not stack up, making it unviable for carriers to transport massive quantities of light, voluminous items.
The good news is there are steps you can take to reduce unnecessary DIM weight. One of the most important is auditing your current packaging, since oversized boxes, excessive filler, or bulging sides can quickly inflate your dimensional measurements. For example, by switching from an oversized shipping box filled with bubble wrap to a smaller box with molded pulp or corrugated inserts, a retailer could trim several kilograms from their DIM weight and reduce shipping costs. They may also benefit from reduced breakage and damage claims as fitted inserts are more effective at securing items than loose bubble wrap.
How can businesses reduce shipping costs without sacrificing service?
Businesses can successfully reduce shipping costs without compromising service or customer satisfaction by choosing the right shipping service, looking for last-minute rates, optimizing packaging, and reducing avoidable expenses such address correction or paper-invoice fees.
Even small, consistent improvements across shipments can significantly reduce costs over time, increasing margin without asking your customers to wait longer for deliveries or accept a lower standard of service.
A few easy places to start:
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Choose the right service level: Not every order requires next-day delivery. Consider economy options for non-urgent deliveries.
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Leverage rewards programs and volume-based pricing: Join carrier rewards programs and ship in volume with a single partner for loyalty points and lower rates.
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Digitize manual processes. Automate processes like shipping label creation and switch to electronic trade documents to reduce errors and related costs.
How to audit your shipping costs: A quick checklist
Visibility is key to managing shipping costs. A quick audit can help identify areas where you may be overpaying or have opportunities to save. Get started by asking yourself the questions below and assessing your business’s shipping efficiency.
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Do you calculate the total landed cost of your items before setting pricing or issuing quotes to customers? Have you recalculated landed cost in the last 6–12 months as rates or duties changed?
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Do you know which surcharges apply to your frequent shipments (before you ship, not after)?
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Do you know the dimensional weight of your most-shipped boxes and how this impacts shipping costs? Have you taken steps to right-size packaging and reduce excess space?
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Are you choosing the right service for your shipment? In addition to priority and economy shipping services, FedEx offers a dedicated e-commerce shipping service that could reduce your costs.
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Are you taking advantage of last-minute rates for heavy freight or volume discounts, such as FedEx Ship More, Save More?
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Do you have easy access to your shipping invoices to track and audit your costs over time? FedEx Billing Online lets you store and access your FedEx invoices in one place, making it easier to review your spending regularly.
If you answered no to more than two or three of these questions, there may be opportunities for you to better anticipate and manage your costs.
Want more practical tips to reduce shipping costs? Download our guide to managing shipping costs with useful tips for managing landed cost, avoiding excess DIM weight, minimizing surcharges, and shipping more efficiently.
Frequently asked questions (FAQ)
Compare shipping options by cost and speed by reviewing the various shipping services offered by your preferred carrier. Most carriers offer a range of express, priority, and economy services for packages and heavy freight, and you can use tools like the FedEx rate calculator to compare costs and transit times.
Remember that cost and speed are not the only factors to consider when choosing a shipping service or partner. Trust your shipping requirements to a reliable carrier that offers ancillary services to meet your specific business needs, including advanced tracking and customs clearance expertise.
Shipping cost typically refers to the base transportation or freight cost of moving your shipment from one location to another. Landed cost is broader and refers to the sum of all expenses associated with shipping a product to its final destination. It typically includes the original product cost, shipping costs and surcharges, customs duties and taxes, insurance, and overhead fees.
The most common reason your shipping invoice may be higher than the rate you were quoted is unanticipated shipping surcharges, such as address correction fees or additional handling fees required due to the size or shape of your package. Other reasons your shipping invoice may be higher than expected include fees for services such as inbound customs processing in the United States or discrepancies in dimensional weight, which can occur due to inadequate or excessive packaging.
The fastest way to reduce shipping costs is to audit your recent shipping invoices and identify and eliminate avoidable costs, such as paper-based invoicing fees or address correction fees. You can also save on shipping by choosing the right service for each shipment, considering factors such as speed and cost. There are many other practical steps you can take to reduce shipping costs, such as right sizing your packaging to minimize DIM weight and checking for last-minute rates.
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